Trust Property: What Is It and Who Owns It?

Trusts are flexible and powerful legal tools, in the right hands. However, when used inefficiently, they can become unmanageable, recklessly expensive, or serve as the equivalent of using a cannonball to swat a fly. If you want to make the most of your trust, start with why you might need one. In most cases, this means identifying your trust property – and why you want it funded into a trust to begin with.

Understanding Trust Property

Trust property is anything funded into a trust. Unlike wills, where you are effectively creating a laundry list of tasks for your chosen personal representative or executor, a trust is more of a legal entity established, defined, and limited by the parameters set in its respective trust document.

As such, trusts must have property transferred into their ownership to go into effect. Think, in this example, of a trust as a person you are creating for the purposes of serving as a bank for select assets and property. However, this is not a sentient person – and they cannot effectively manage whatever is being transferred to them alone.

That is where the role of the trustee comes into play. The trustee is put in charge of managing the contents of the trust, as well as the trust itself, until the time comes for the trust to be resolved (usually after death or incapacity, or some other defined condition).

Nearly anything can be funded into a trust, but there are limits, as well as things you can but ideally shouldn’t fund into a trust. A few good examples of things you might not want to transfer via trust include retirement accounts (name the trust as the account’s beneficiary instead, to avoid triggering a year’s worth of income taxes on a one-time retitling), life insurance policies, and in some states, vehicles.

Check with your tax professional or estate planning attorney to determine the tax impact of transferring or retitling assets into a trust. In many cases, it is better to name your trust as a beneficiary of your life insurance account or retirement account, or transfer your vehicles through beneficiary designations, which also bypass the probate process. For example: retitling a car title through your trust can, in some states, count as a transfer of title, which leads to state taxes and fees.

What Is in a Trust?

A trust is an established entity defined by its trust document and managed by a trustee.

The trustor or grantor is the signatory of the trust document and its creator.

The beneficiaries are those who receive their bequeathment through the trust, either in the form of income or a portion of the trust’s principal (whatever is funded into to).

These three parties are generally what make up a trust’s structure. The contents of a trust are determined by whatever the grantor decides to transfer into it. It could be a boat, the deed to a home, cash, the contents of a bank account, keys and deed to a vintage car, or ownership rights to a portion of the family business.

There is just one major caveat – whenever something is transferred into a trust, its transfer must be reflected on the respective paperwork that determines ownership. If it’s something that doesn’t require any ownership papers, then it’s enough to include it on the original or amended asset list alongside the trust document.

But if it’s something that requires a deed, title, or an owner’s name and signature on a piece of paper, then part of the process of funding a trust means amending all the relevant documents to clarify that each asset is, indeed, the trust’s property.

To recap: trust property is whatever is properly funded into a trust and accurately listed on the trust’s asset list. Trust property is transferred by the grantor, managed by the trustee, and owned by the trust itself.

Types of Trust

There are multiple different types of trust that are used to hold and distribute property in different ways, for different purposes.

A trust can be built strictly to avoid probate for certain properties and enable a smooth transition in ownership after death. Trusts may also take over the estate plan completely, bypassing probate entirely with the help of a pour-over will designed to designate any leftover property to the trust.

Some trusts can be written to minimize an estate’s tax liability by lowering the estate’s total value, through a direct cut-off between the trust’s grantor and their property. These trusts can also serve to offer asset protection against certain creditors.

Amending a Trust

Like wills, trusts can be amended through the creation of an additional document, to be signed, witnessed, notarized, and stored alongside the original trust. Trust amendments serve as superseding rules created by the grantor of the trust. Just like a will codicil, it is recommended to revoke and rewrite a trust if too many amendments have been created.

Unlike a will, certain trusts cannot be amended. Irrevocable trusts are practically set in stone and can only be revoked through a judge.

Other Important Probate Alternatives

Trusts are not the only way to bypass probate. If that is your main concern, then consider maximizing the use of other alternative methods, and saving your trust for assets you cannot otherwise transfer without the probate process. These include:

  • Direct beneficiary provisions – retirement accounts, savings accounts, and annuities can all name direct beneficiaries for their remainder after the original owner’s death.
  • Designated beneficiaries for property – certain property can be transferred upon death without the need for probate, via a beneficiary designation.
  • Named beneficiaries for bank accounts – just like property, bank accounts may be payable upon death to a different account holder.
  • Co-owned assets – splitting ownership with your beneficiary of choice makes them a full owner upon your passing, although there are other tax considerations at play here.

In any case, if it is probate you are worried about, make sure to set up a living trust. Testamentary trusts, which only go into effect after the grantor’s death, must still pass their assets through probate.

Trust Property Conclusion

Understanding how trusts function can help you coordinate with an estate planning professional and make the most of your own trust. Your estate may have need for a completely different type of trust than the next. If you are considering a trust, be sure to broach the topic with your estate planning professional and be prepared to go in-depth.


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